Danger­ous game of pars­ing Trump’s words

Tough re­al­ity check for pledge of jobs, wages

Move over, Janet Yellen. The Fed­eral Re­serve chief has a chal­lenger for the ti­tle of speaker most scru­ti­nized by Wall Street, and it’s Don­ald Trump. All new US pres­i­dent-elects are closely mon­i­tored by the fi­nan­cial com­mu­nity for clues about what their poli­cies mean for mar­kets. But Trump’s speak­ing style, of­ten us­ing en­thymemes or in­com­plete sen­tences that leave room for in­ter­pre­ta­tion, along with vague or con­tra­dic­tory cam­paign prom­ises make him all the more chal­leng­ing to de­ci­pher.

“His state­ments are crazy. He says pe­cu­liar things, like build­ing the wall and get­ting Mex­ico to pay for it, that you know are just not go­ing to hap­pen,” said Al­lan Meltzer, a Fed his­to­rian and pro­fes­sor of political econ­omy at Carnegie Mel­lon Univer­sity, in Pitts­burg. “But his ac­tions as op­posed to his state­ments have been very mod­er­ate,” he said.

Ex­hibit A for how Trump has pol­icy mak­ers and in­vestors hang­ing on his ev­ery word came shortly af­ter the Repub­li­can’s con­cil­ia­tory ac­cep­tance speech early Wed­nes­day. Bonds fell and stocks gained as in­vestors placed ten­ta­tive bets that Trump’s some­what vague plat­form of economic stim­u­lus would trans­late into cor­po­rate prof­its and higher in­fla­tion.

The stakes are high. With a Repub­li­can con­trolled House and Sen­ate, Trump has the op­por­tu­nity to use his time in of­fice to rad­i­cally re­shape the Amer­i­can econ­omy. He has pledged dra­matic tax cuts, in­fra­struc­ture spend­ing and economic dereg­u­la­tion, and wants to re­peal Oba­macare. These mea­sures he says will turbo-charge growth and help boost the wages of those who have lost out in a glob­al­ized world where “mid­dle-class” jobs have been squeezed.

With the US bud­get deficit at just 3.2 per­cent of gross do­mes­tic prod­uct, com­pared with 9.8 per­cent in 2009, and near record low in­ter­est rates, Trump has room to un­der­take a large-scale fis­cal boost, at least in the short term. His re­strained ac­cep­tance speech hinted that in­fra­struc­ture was a pri­or­ity. Trump said he would “re­build our high­ways, bridges, tun­nels, air­ports, schools, hos­pi­tals (and) our in­fra­struc­ture, which will be­come, by the way, sec­ond to none.”

On the cam­paign trail, Trump’s speeches were full of su­perla­tives and un­fin­ished thoughts that only com­pli­cated mat­ters for traders and economic pol­icy watch­ers. These en­thymemes are a rhetor­i­cal de­vice at the heart of a per­sua­sive speak­ing style that has helped cat­a­pult the bil­lion­aire to the White House. Try­ing to parse his words is one thing. Ac­tu­ally putting money to work quickly base on them brings far more risk than usual, ac­cord­ing to Brian Shapiro, CEO of SPAG Funds, a small global macro hedge fund manager based in New York. “I won’t re­act to it, but the world will,” he said. “I think peo­ple will have a heart at­tack if they re­act to ev­ery word.”

Economic ad­vi­sory firm Fathom Con­sult­ing dubbed the elec­tion out­come “Trump Lite”: a world in which as Pres­i­dent-elect he would be un­will­ing or un­able to en­act some of his more ex­treme poli­cies such as build­ing a wall at the Mex­ico bor­der, mass de­por­ta­tions of im­mi­grants and wide-rang­ing pro­tec­tion­ist mea­sures. “Mar­kets are wait­ing to see if we are go­ing to have the cam­paign Trump who spoke in rhetoric, or Trump the pres­i­dent who is go­ing to be more prag­matic in his ap­proach,” said Ko­mal Sri-Ku­mar, pres­i­dent of Sri-Ku­mar Global Strate­gies.

Econ­o­mists and fund man­agers, as well as the Fed’s pol­i­cy­mak­ers, are looking to see which is­sues Trump will pri­or­i­tize. So far, in­di­ca­tions are he would pur­sue tax cuts, ad­di­tional mil­i­tary spend­ing, and re­vamp­ing Pres­i­dent Barack Obama’s Af­ford­able Care Act, dubbed Oba­macare. Chicago Fed Pres­i­dent Charles Evans, speak­ing to re­porters as Amer­i­cans voted on Tues­day, said he would try to fig­ure out whether or not the new pres­i­dent’s fis­cal poli­cies “would be more sim­u­la­tive, about the same, or worse,” adding the level of mar­ket volatil­ity would pro­vide a clue.

Trump has no de­fined economic team. It is un­clear whether he will fol­low the lead of say Peter Navarro, a pro­fes­sor at the Univer­sity of Cal­i­for­nia at Irvine, whose stud­ies sug­gest a tougher trade stance against China; or whether he could cleave to Wall Street al­lies such as for­mer Gold­man Sachs alum­nus Steven Mnuchin, who has been mooted by Trump as a po­ten­tial Trea­sury Sec­re­tary. —Reuters

Don­ald Trump’s prom­ise to re­vive small town Amer­ica faces a tough chal­lenge in an econ­omy that for decades has been wired to di­rect in­come and op­por­tu­ni­ties to­wards ur­ban hubs and the bet­ter ed­u­cated. Lit­tle in the pres­i­dent-elect’s so far sketchy economic plans in­di­cates the trend can be re­versed any time soon, ac­cord­ing to in­ter­views with ex­perts on in­come in­equal­ity and re­cent oc­cu­pa­tional trends.

The man­u­fac­tur­ing jobs Trump pledges to bring back have dis­ap­peared as much be­cause of au­toma­tion as the trade deals he has promised to re­write, and that process will only con­tinue. A promised in­fra­struc­ture re­vamp would boost mid­dle wage jobs but for only as long as the pro­grams last, econ­o­mists point out. Dur­ing Pres­i­dent Barack Obama’s eight years in of­fice in­comes for the best off con­tin­ued to di­verge, de­spite nearly 10 mil­lion new jobs and re­cent strength in those pay­ing mid­dle-tier wages.

On a pre-tax ba­sis, the share of in­come to the top fifth of house­holds in­creased from 50.4 per­cent to 51.4 per­cent be­tween 2008 and 2015 at the ex­pense of all the oth­ers, ac­cord­ing to cen­sus es­ti­mates. With­out the sort of tax and re­dis­tri­bu­tion poli­cies Repub­li­cans have tra­di­tion­ally op­posed, Trump may strug­gle to make good on his prom­ise to help those left be­hind in the global econ­omy, econ­o­mists who study in­equal­ity trends say.

“We have 30 to 40 years to catch up on...Lots of money has gone to the top and to change that is go­ing to be a long and slow process,” said David Mad­land, a se­nior fel­low at the Cen­ter for Amer­i­can Progress, a think tank with close ties to Demo­cratic nom­i­nee Hil­lary Clin­ton’s cam­paign. Trump cam­paigned promis­ing to shake up a Washington es­tab­lish­ment he ar­gued was re­spon­si­ble for de­stroy­ing mid­dle class jobs with bad trade deals. The mes­sage hit home across ru­ral Amer­ica and mid-sized cities, where vot­ers felt they missed out on the fruits of the sev­enyear economic re­cov­ery that big cities may have en­joyed.

Char­lotte has been grow­ing fast as a fi­nan­cial hub that at­tracts col­lege ed­u­cated tal­ent from around the coun­try, and Demo­cratic nom­i­nee Hil­lary Clin­ton did bet­ter there than Obama did in 2012, hand­ily beat­ing Trump by 137,000 votes. But in the state’s tex­tile and fur­ni­ture belt just north­west from here, Trump’s prom­ise of economic re­newal and anx­i­eties of a shrink­ing white ma­jor­ity more than off­set Clin­ton’s ur­ban vic­tory, giv­ing him 76 out of 100 North Carolina’s coun­ties.

The Catawaba County re­gion, one of the na­tion’s hard­est-hit by cheap im­ports from China, now has a more di­verse econ­omy and even the fur­ni­ture in­dus­try has be­gun adding jobs. But many still live in poverty and rely on dis­abil­ity and so­cial ser­vices for sup­port. “The trade ar­gu­ment was as prom­i­nent as any. That is cer­tainly the bet that the Trump cam­paign has made,” said John Di­nan, a political sci­en­tist at Wake For­est Univer­sity.

Tak­ing Out Oba­macare

Trump has not high­lighted in­come in­equal­ity the way Clin­ton did, but to help low-wage in­dus­tries such as tex­tiles or of­fer a “new deal” for blacks, he would need to tackle the in­come gap. Re­cent data show how hard it may be if Trump re­lies on economic growth alone: De­spite a record jump in house­hold in­come and a con­tin­ued surge in mid­dle wage jobs na­tion­ally, the ef­fect on in­come in­equal­ity was “sta­tis­ti­cally in­signif­i­cant” ac­cord­ing to cen­sus es­ti­mates. —Reuters